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Middleby Downgraded to Hold

On Mar 26, Zacks Investment Research bringing back The Middleby Corporation (MIDD), to a Zacks #3 Rank (Hold) from a Zacks Rank #2 (Buy), based on the potential challenges the company will face to achieve better earnings in 2013 despite a better-than-expected fourth-quarter of 2012.

Why the Downgrade?

In the fourth quarter 2012 conference call, this cooking and warming equipment manufacturer contends that it will have to face challenges to achieve the desired earnings in the coming quarter despite Middleby’s fourth quarter 2012 earnings of $2.03 per share, beating the Zacks Consensus Estimate as well as year-ago earnings.

Middleby’s significant revenue earning region, Europe, has been facing constant turmoil, which is hurting the company’s international revenues. Middleby’s business is fully dependent on the operations of its end markets like food processing units and restaurants. However, the declining consumer spending, due to economic downturn results in the loss of business for the restaurants. This in turn diminishes Middleby’s revenue.

The business operations outside the US also make Middleby prone to foreign currency risks. Middleby also stated that the acquisitions undertaken in the recent past have low margins, and are thus diluting the total margins.

Based on the above factors, the Zacks Consensus Estimate for 2013 decreased 0.4% to $7.15 per share over the last 30 days, led by a downward revision of the estimates. However, it is expected that the economic situations will improve in the distant future, increasing the estimates for 2014 by 0.9% to $8.51 per share.

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